THE SECOND PHASE
Myanmar mulls how to continue the reforms
With a near consensus that Myanmar’s reform process is irreversible and a general election slated for November, analysts say the question now is how the military-ruled country can smooth into a second phase of reforms as the economy continues to expand.
Korbsak Pootrakool, executive vice-president of the international banking group for Bangkok Bank (BBL), echoed the opinion of other investors and observers that it is unlikely Myanmar’s economic reforms will be overturned following four years of progress.
“People are worried about what will happen after the election. From our own experience in Thailand and many other countries, once economic progress starts, it will continue,” he told the recent Euromoney Conference held in Nay Pyi Taw.
BBL, Thailand’s second-largest lender by assets, is among the nine foreign banks that received licences to open a branch in Myanmar last October, along with Bank of Tokyo-Mitsubishi UFJ, Oversea-Chinese Banking Corporation, Sumitomo Mitsui Banking Corporation and United Overseas Bank.
“It will be very hard for Myanmar to turn back. The private sector has seen the opportunities, embarked on new business and reaped the results. Also, I can see the happiness of the local people in Myanmar everywhere I go. So it will be very hard for them to turn back the clock,” he said.
Mr Korbsak said the Thai economy managed to grow at a very high rate despite instabilities in the past, including several coups.
“Political and economic progress are two different things. The key is the private sector. Let them drive the economy and it will be sustainable. I’m very confident everything will be okay after the election. There may be some minor changes, but the momentum will continue, taking the country forward. Our clients still show strong interest in the Myanmar,” he said.
The challenge for Myanmar is carrying on into the second phase of reforms.
“The first phase was relative easy. Myanmar was like a plane that just took off, rising to a high altitude quickly. But now the country is on the radar of every investor around the world, with a growth rate reaching 8%,” said Mr Korbsak.
“The question is how to sustain the reforms in the second phase, which I think will be more difficult. When people talk about the slow pace of reforms, it reflects the fact that the first phase is the low-hanging fruit, such as consolidating multiple exchange rates, opening up the banking system, and changing the investment law.
“We have found that as you enter into the second phase, the challenge is how you develop the soft side of the government and the regulators so they can keep up with and support the private sector is the key to sustainability.”
He pointed to the experiences of Vietnam and Thailand for a model of how to ensure longterm stability.
“If you want a stable environment for private investment, government discipline is crucial,” said Mr Korbsak.
“If you take a wrong turn, you can become Mexico or another Latin American country where they had problems controlling the exchange rate. With an unstable exchange rate, people will be hesitant to invest in your country.”
However, there is a question as to whether the Myanmar economy is close to overheating.
“We can see Yangon has many more buildings. The cost of labour, land and housing is rising. This is the early phase, but if you let it go like this for three more years, it will become very hard to control,” he said.
“This is why the second phase of reform is so difficult — how can you control obstacles such as inflation when the economy grows faster and faster.”
A final concern for Mr Korbsak is infrastructure development keeping pace with economic growth.
“Every time I come here, I notice Yangon is more congested. As your economy grows, the challenge is shifting and it requires more management,” he said.
Aung Tun Thet, economic advisor to the president and vice-chairman of the National Economic and Social Advisory Council, said the Myanmar government is committed to the reforms.
“Myanmar has come a long way. The first transition has been very smooth in opening up the economy. We are now engaging with regional and international communities,” he said.
Aung Tun Thet said Myanmar should focus on two issues: the direction and speed of reforms.
“There is no doubt the direction of reforms is correct, but the pace needs to be modulated depending on the situation, either slowing or accelerating. As long as the destination is correct, the journey to get there will be alright,” he said.
“We are very clear about where we want to be by 2030. How soon we get there is a different issue. But there is no turning back.
“In our country, we don’t use the word change but rather transformation. Myanmar is a butterfly and we don’t want to become a caterpillar again. We want to reassure foreign investors we see a different role for the government. The private sector is the key engine of development.”
Businesses need to look at Myanmar in a much wider context, said Aung Tun Thet.
“We are the only country in Asean that borders India and China, which have a combined market of 3 billion-plus people. The message to foreign investors is please don’t look at us as another small country, with only 52 million people. Look at us as a regional hub. We used to be a hub in Southeast Asia 60 years ago, and we want to regain that position because we have geographical advantages,” he said.
If foreign investors focus too narrowly on the domestic market, they are going to miss the advantages of the liberalising economy, said Aung Tun Thet.
Myanmar has improved its ease of doing business, as it now takes two days to register a private company, down from two months.
“You cannot cross the sea by just looking at the water. So please, foreign investors, don’t just look at the water, but cross the sea. What you will get is great opportunities,” he said.
“We are seriously looking at how to reengage with the global economy. There’s still a lot of work to be done. The role of government will be to facilitate and coordinate businesses, so they can do what they are very good at. The government will provide an enabling environment so business can use its creativity and innovation.”
“If you take a wrong turn, you can become Mexico or another Latin American country where they had problems controlling the exchange rate. With an unstable exchange rate, people will be hesitant to invest in your country”